Ballmer Learned His Lesson From Last Year: No Tablets

Microsoft CEO Steve Ballmer kicked off CES for the third time in a row this year, and it looks like he learned his lesson from last year: concentrate on the positives and don't embarrass yourself by showing an inferior product.

Last year, he showed off a bunch of tablet PCs running Windows 7, which at the time was only about three months old. All of them looked kind of awkward, especially when compared with Apple's iPad, which Steve Jobs unveiled a few weeks later.

This year, Ballmer started off with the most innovative consumer product Microsoft has released in years, the Kinect motion-sensitive game controller for Xbox 360. It went on sale on November 7, and Microsoft has already shipped 8 million units. That's sell in to retailers, not sell through to consumers, but it's still a pretty impressive number--retailers aren't going to buy a bunch of these things to let them sit on their shelves.

By way of comparison, Amazon's Kindle might reach 8 million this year after more than 2 years on the market, and the first iPhone didn't break 8 million until the 3G version was launched more than a year after the original. It just goes to show what some good old fashioned innovation can do.

Next came Windows Phone 7, which demos well even if it hasn't sold very many copies--about 1.5 million at last count. (Ballmer didn't update that number.)

Windows 7 PCs were saved for last, and the only tablet that made an appearance was the Asus Slate. The rest of the PCs shown were distinctly un-tablet-like, with full keyboards and no touch screens.

The message was clear: Microsoft is a great consumer company, and Windows 7 is a fine consumer product. Microsoft has a tablet strategy--the next version of Windows will run on low-powered ARM processors -- but it's not urgent.

Looking at the big picture, it's hard to see how Microsoft could act otherwise--the company makes 80% profit margins on Windows, and more than 400 million PCs are expected to sell in 2011. Microsoft would earn far less on a specialized tablet OS, and sell far fewer of them as well. Why cannibalize one of the greatest businesses ever?

The trouble is, by the time the tablet shows itself to be a real market, Microsoft's competitors--Apple and Google (Android) -- may have built an unassailable lead. As tablets cut 1%, then 2%, then 5% from Windows PC sales, Ballmer may regret not moving sooner and with more urgency.